Targeting Big Oil

If you look in any direction these days, you'll almost certainly find a partisan group dispensing recommendations to the Obama administration on reducing our ballooning national deficit and taking a meaningful chunk out of the nation's stubbornly high jobless rate.

The energy industry, and especially Big Oil, has always been targeted for "special" treatment by those looking to scoop up extra funding from what they consider to be overly flush companies. Last week, as Congress prepared to vote on the president's jobs bill, a pair of organizations squared off, one calling for the oil companies' tax burden to be ratcheted upward, while the other was similarly zealous in its determination that the industry should be protected from "special" treatment by the tax man.

Making progress by nailing Big Oil
The first group to weigh in, with a heightened tax levy for energy on its mind, was the Center for American Progress (CAP), a Washington-based think tank that was founded in 2003 by John Podesta, a former chief of staff to President Clinton. As the group's name implies, it tends to approach issues from a progressive perspective, thereby targeting the oil and gas companies to cough up more of their "fair share" in taxes

Its adversary in the current skirmish is the Institute for Energy Research, a Houston-based, not-for-profit organization that spends its time studying the operations and regulation of the world's energy markets. In this instance, the kerfuffle was initiated by a CAP report maintaining that the five biggest oil companies -- BP (NYSE: BP  ) , Chevron (NYSE: CVX  ) , ConocoPhillips (NYSE: COP  ) , ExxonMobil (NYSE: XOM  ) , and Shell (NYSE: RDS-B  ) -- are "predictably opposed to losing (their) unnecessary tax breaks," and that they all have " ample financial resources that dwarf the value of these tax breaks."

"In other words," the CAP report said, "Big Oil can readily afford to contribute its 'fair share' to reduce American debt." You may recall that I discussed the potential reductions of the industry's proposed tax breaks in an article last week, and so I'll only add an economic (rather than political) assessment that, whether it's Warren Buffett's conclusion that extra-wealthy individuals should ante up more to cover their "fair share," or CAP's identical contention regarding Big Oil, the relationship between "American debt" and a "fair share" becomes more questionable when approximately a trillion dollars of that debt has resulted from an ineffective Keynesian stimulus.

The report also maintains that "Big Oil could easily exceed $100 billion in profits for 2011." It then follows with what actually is a reasonable question: "Why can't these companies afford to forgo $2 billion annually in taxpayers' money?"

Energy-state senators weigh in
Perhaps the best answer to that question resides in a letter written by U.S. Sen. David Vitter (R-La.) and directed to Interior Secretary Ken Salazar and Bureau of Ocean Energy Management Regulation and Enforcement Director Michael Bromich. In his epistle -- which was also signed by Sens. Kay Bailey Hutchison (R-Texas), Richard Shelby (R-Ala.), and John Cornyn (R-Texas) -- Vitter points out that: "Under the Obama administration's management, revenue from our offshore lease sale program has gone from $10 billion to nothing in just three years. Revenues cannot be generated from lease sales that do not happen."

Beyond that, it appears the staff at CAP would do well to take a remedial finance class. By my calculation, ExxonMobil's effective rate in 2010 was 41% -- precisely the industry average. That's considerably higher than the 18% rate attributed to the company in a Washington Post "expose" based on a CAP analysis. The Post article actually maintains that ExxonMobil sports a tax rate lower than the typical middle-class family's 21%.

Big Oil doesn't occupy all the space on the griddle these days. General Electric (NYSE: GE  ) has been receiving Republican flak given that its CEO, Jeff Immelt, serving as head of President Obama's Council on Jobs and Competitiveness, has become among the executives closest to Obama. At the same time, the big company ($150 billion in revenues last year) has been criticized for paying relatively little in federal taxes last year, a phenomenon it attributes to having lost $32 billion at its capital arm.

Flying on one industry's engine
Perhaps even more egregious, GE is forming an aviation joint venture in China. That venture is being concluded, apparently with little or no federal (or union) opposition, at precisely the time Boeing (NYSE: BA  ) is being forced to jump through hoops simply to open a new plant in right-to-work South Carolina, which, last time I checked, and unlike China, was one of the 50 U.S. states.

For at least a century now, Big Oil has been something of a whipping boy for certain elements of our society. However, given the obvious need to expand our nation's energy security, it appears that the sector should be accorded treatment at least commensurate with other manufacturing groups. Given my strong belief in the importance of those who traverse the world in search of oil and gas, I'd suggest that Fools include ExxonMobil and at least a few of its smaller peers on their individual copies of The Motley Fool's My Watchlist

Motley Fool newsletter services have recommended buying shares of Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor David Lee Smith doesn't own shares in any of the companies named above. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 13, 2011, at 11:28 AM, Poutman wrote:

    The oil company profits for U.S. tax purposes are overstated in this article. The major oil companies' profit in the U.S. is about 20% of the $l00 million. Obama continually states he can raise $40 billion in new taxes per year. If my math is correct, that's a 25% tax increase on U.S. profits. That's on top of the 41% tax rate already paid by these companies. Good way to kill more U.S. jobs.

  • Report this Comment On October 13, 2011, at 11:32 AM, Poutman wrote:

    Correction from Poutman: It is $40 billion in 10 years, or $4 billion per year.

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